The Shubenacadie River.

No one who keeps an eye on the Nova Scotia energy scene was surprised to learn that EnCana plans to halt production at its ill-starred Deep Panuke offshore gas development in two to three years.

Not only was the project 10 years late and a billion dollars over budget, water problems have plagued it, reducing production to the winter months only, when prices are highest. But the timing of EnCana’s decision also coincides with the planned shutdown of five steadily producing gas fields off Sable Island operated by ExxonMobil that have generated $2 billion in royalties for the province. This effectively puts an end to a local source of natural gas that’s been available for 20 years.

“We all knew the offshore was going to go away. What’s been a surprise is how quickly it has happened,” said John Hawkins, president of Heritage Gas. Heritage supplies 6,600 commercial and residential customers in Halifax, Amherst, Oxford, and New Glasgow. Hawkins is alluding to (a) the fact that Deep Panuke’s shelf-life will be only half the 13 years formerly projected, and (b) the industry’s disappointment that Shell’s two recent exploration wells didn’t result in commercial quantities of new gas.

Over the past two years, only one company has chosen to bid in auctions for offshore leases. And the sole well to be drilled by BP Canada in 2018 is chasing an oil discovery, not natural gas.

“A game changer” is how Ray Ritcey describes the effect that a surplus of fracked shale gas in the northern U.S. and western Canada has had on interest in the Nova Scotia offshore, deflating earlier hopes of a steady local supply. Ritcey is president of the Maritimes Energy Association. It’s the industry group formerly known as OTANS (Offshore Onshore Technology Association of Nova Scotia), back when the Province had a active offshore industry.

Although the glut of cheap natural gas has made developing gas offshore uneconomic today, security of supply is not an issue: there’s plenty of gas elsewhere. But the key question for Nova Scotia consumers, is how much we’ll pay for it in the future.

The transportation cost to deliver Sable and Panuke gas over the Maritimes & Northeast Pipeline system has averaged about 80 cents a gigajoule. Ritcey, who was hired as the first president of Heritage Gas in 2003-2010, suggests pipeline transportation costs to bring natural gas from Alberta or the Marcellus shales in Pennsylvania could add another $1- $3 per gigajoule to the transportation cost.

That’s made the controversial Alton Natural Gas Storage Project even more crucial to whether the fuel remains a viable choice in this province.

“Very, very important” is how John Hawkins of Heritage describes the proposed Alton Natural Gas Storage Project for keeping prices in check. It’s controversial for environmental reasons (see below) but the storage option would allow the company to buy gas in the summer when the price is low and release it during the winter when the price is higher.

The $130-million Alton project is owned by AltaGas, the same Alberta parent company that owns Heritage. The plan is to hollow out two underground salt caverns to a depth of one kilometer and store natural gas brought to the site by the Maritimes & Northeast Pipeline from the U.S. and western Canada. Similar storage facilities have been in place for 60 years in southwestern Ontario and Pennsylvania. Documents filed with the UARB suggest the benefit to gas consumers could be as much as $18 million a year.

Although AltaGas has permission to begin brining out the salt caverns but the company says it won’t start the work until later this year. There appear to be two reasons for that. The Alton storage project has permission from environmental regulators to dump brine from the caverns into the Shubenacadie River twice a day, an amount equivalent to about one-tenth of one percent of the tidal flow. Environmental studies since 2006 recommend no dumping during the season when striped bass are spawning in the river, a recommendation the company must respect.

The other reason has to do with a proposed benefits package AltaGas has asked the Sipekne’katick (or Indian Brook) First Nation to consider. The Shubenacadie band has vigorously opposed the gas storage project because of its concern dumping brine could harm fish in the river. Another First Nations group, the Assembly of Nova Scotia Mi’kmaq Chiefs, supported Alton following an environmental study it commissioned.

But Sipekne’katick went to the Supreme Court of Nova Scotia when former Environment Minister Margaret Miller denied the band’s appeal of her decision to green light Alton. Last January, the court set aside the Minister’s decision for lack of sufficient disclosure, leaving the door open for another appeal from Sipekne’katick and another potential delay.

This May, following that ruling, Alton Gas Storage presented the Chief and Band Council with a proposed benefits agreement. Chief Michael Sack told the Halifax Examiner that “we are still exploring the potential benefits agreement, and when we finalize what that will contain, we will put it to our people for a referendum vote sometime this summer.”

There are about 2,500 people in the First Nation, half of whom live on lands outside Indian Brook. It’s not clear at this stage who will be eligible to vote or what the final terms of that agreement will be, but a “yes” vote could ease tensions with neighbours and provide the “social licence” or buy-in the project has so far lacked.

Here are some of the items included in the May 24 potential benefits agreement drafted by the Alton Gas Storage Project:

• The Sipekne’katick will have jobs on Alton’s environmental protection team and during construction.
• The Company will invest in a land-based aquaculture operation for striped bass.
• Alton Gas Storage will undertake to begin building an exit ramp of Highway 102 similar to the one at Millbrook south of Truro.
• Alton Gas Storage is prepared to invest in a source of renewable energy (wind/solar) or upgrade buildings in the Indian  Brook community to reduce  electricity costs.

No schedule has been determined for when work on the storage project will begin, but Lori MacLean, senior communications advisor for the Alton Gas Storage Project, says the company does plan to proceed with brining later this year.

It’s difficult to pinpoint how much of the natural gas produced offshore Nova Scotia is consumed locally because of the way gas is traded and marketed as a commodity. Those sales are not transparent, but both Hawkins and Ritcey agree a very high percentage of offshore gets consumed here — at least 75 per cent and often closer to 90 per cent,  depending on how much NS Power decides to buy.

Last winter, combined production from Sable and Deep Panuke fields averaged 185 million cubic feet or 185,000 gigajoules (GJ) a day, according to figures provided by the regulator, the Canadian Nova Scotia Offshore Petroleum Board. At its peak, Sable was producing more than double that amount. On a cold winter day, Hawkins says demand in this province requires 250,000 GJs. So since 2014, Heritage has been importing gas to meet our demand. The Maritimes & Northeast pipeline is reversible: as our appetite for natural gas has grown and local supply diminishes, more than 50 per cent of the pipeline’s flow is now to Canada from the United States, in sharp contrast to 100 per cent flowing to Boston when Sable production began in 2000.

“The Maritimes Energy Association thinks it is important that the provincial government re-think the ban on hydraulic fracturing or fracking to allow exploration onshore for new sources of natural gas,” says Ritcey. He says finding another source in Nova Scotia could “alleviate the fuel price increase” likely to be felt by customers here.

The man in charge of distributing natural gas in Nova Scotia, Heritage Gas president John Hawkins, is not convinced higher transportation costs will necessarily mean higher prices for present or future Heritage Gas customers. Hawkins says the utility’s scale, and the sheer abundance of the fuel, gives it the ability to negotiate long term contracts that will keep prices stable even if transportation costs more. He says companies that buy directly from marketers may have a more difficult time.

“Heritage is confident that it will continue to be able to secure competitively priced natural gas,” Hawkins told The Halifax Examiner. “For example, this past winter Heritage Gas secured the majority of its gas needs from Western Canada. Despite the continued decline in the supply from the offshore, and the cost of transporting the gas a long distance, the company was able to reduce the price paid for gas by 25 per cent relative to recent years.”

That’s the “commodity price” Hawkins is referring to. Commercial customers such as Killam Properties got an even bigger price break of 64 per cent, after the UARB allowed Heritage to reduce the all-in price of delivered gas to prevent a mass stampede to propane. (Ironically, propane is a liquid derived from natural gas, so the glut of natural gas also dramatically lowered its cost as well.) For next winter, Heritage Gas claims it has already purchased the majority of gas needed to meet customers’ needs for 2018 (regardless of whether the offshore produces), and expects the price it pays will be similar to last winter.

Hawkins says the company has also entered into a 15-year agreement on Enbridge’s Atlantic Bridge pipeline project to access long-term, stable supplies of natural gas from the United States. Enbridge distributes natural gas in New Brunswick. Heritage will have access to this gas in November of 2018.

“This agreement will complement our long-term supply strategy, that includes natural gas storage,” says  Hawkins.

Ironically, the glut of natural gas elsewhere which has virtually halted the development of known gas reserves offshore Nova Scotia, is now the best hope for consumer prices to stay competitive in the future. The fate of the Alton Natural Gas storage project will play a large part in that equation.

An earlier version of this story incorrectly identified John Hawkins.

Jennifer Henderson is a freelance journalist and retired CBC News reporter.

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  1. Hopefully the glut in natural gas will keep the cries for fracking in this province at bay. We obviously don’t need it.